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Tanner Construction, Inc., et al. v. HUB International Insurance Services, Inc. (March 10, 2014)

The Third Appellate District Court of Appeal (Sacramento) issued an opinion in Mark Tanner Construction, Inc., et al. v. HUB International Insurance Services, Inc., analyzing, among other things, specific duties owed by an insurance broker. The Court of Appeal held that insurance brokers owe a limited duty to use reasonable care, diligence and judgment in procuring the insurance requested by an insured. Although there is some dispute as to whether an insurance broker has a fiduciary duty other than in handling the insured’s money, there is no authority supporting a fiduciary duty that would extend to areas beyond the recognized duty to owe reasonable care and diligence in the procuring of insurance at the insured’s request. 

The case arose out of the sale of a self-insured workers compensation program for contractors. Compensation Risk Managers of California LLC (“CRM”) administered Contractors Access Program of California (“CAP”), a self insured workers compensation program for contracts. CRM contracted with Diversified Risk Insurance Brokers (“Diversified”) to market CAP. Diversified served as broker for Plaintiff and Appellant Mark Tanner (“Tanner”) and Mt. Lincoln who were members of CAP from 2006 to 2008.. On December 31, 2009, CAP was terminated and eventually defaulted on payment of benefits for its workers’ compensation liabilities. Tanner and Mt. Lincoln sued HUB for professional negligence and constructive fraud. (Ibid.) Plaintiffs alleged that Diversified had a duty to investigate, engage in a reasonable inquiry, discover and inform plaintiffs of all information that might effect their decision to enroll in CAP, including financial conditions. HUB moved for summary adjudication arguing both causes of action lacked merit. In response to HUB’s motion for summary judgment, plaintiffs requested a continuance alleging that their counsel had recently learned that HUB withheld important evidence relating to the legal and factual relationships between plaintiffs, HUB, CRM and CAP. Plaintiffs also moved to amend the complaint. The trial court denied the motion to amend the complaint and granted HUB’s motion for summary judgment. Plaintiff’s appealed the judgment entered in favor of HUB.

The Court of Appeal affirmed the judgment and the order denying plaintiffs’ leave to amend the complaint. According to the Court of Appeal, plaintiffs failed to address the trial court’s finding that the motion failed to establish good cause to amend.

In affirming the judgment, the Court of Appeal stated that insurance brokers owe a limited duty to their clients―in cases other than when handling an insured’s money—to use reasonable care, diligence and judgment in procuring the insurance requested by an insured. Therefore, the Court of Appeal stated an insurance broker owes no duty to its clients to investigate the financial condition of an insurer before placing insurance with it on their behalf. HUB offered undisputed facts that Diversified was the insurance broker for Tanner and Mt. Lincoln as expressly stated in the first amended complaint, thus owing a limited duty. Further, plaintiff’s evidence offered in opposition did not refute Diversified’s role as insurance broker for plaintiffs. Therefore, plaintiffs’ failed to create a triable issue of fact for professional negligence. In regard to the constructive fraud claim, the Court of Appeal stated constructive fraud is applicable only to a fiduciary or confidential relationship. No authority creates a fiduciary duty or extends a duty owed by an insurance broker beyond the recognized duty to owe reasonable care and diligence in the procuring of insurance at the insured’s request. The Court of Appeal held that an insurance broker has no duty to ascertain the financial soundness of the insurer or to advise an insured of adverse changes in the insurer’s financial capability. Therefore, the Court of Appeal held the trial court did not err in granting summary judgment.

This case is a Lewis Brisbois collaborative effort by Sacramento partner, Bruce Shaffer, and San Diego Appellate Practice Group members Jeff Miller, Ernest Slome and Lann McIntyre.

Related Practices

• Professional Liability